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Wednesday Technical Update.

A very nasty day on Wall Street today. It really does appear this time “it is different.” It appears risk is truly perceived differently than when the Fed was more active “facilitating the free market.” It appears forced selling has begun. It appears investors are beginning to make redemption requests.

There are lots of reports of hedge fund carnage in September and this Friday being the final day for investors to request redemptions from funds. As an example Jon Paulson’s fund is down nearly 40% in 2011 and part of his loss is driven by financial investments on his “BAC is a $30 stock in 2011″ and “housing has bottomed” calls. What irony, the man who (with the help of others) made money shorting housing is giving it all back partly due to a bad call on the housing recovery.

The slide in copper and oil is very severe. This begs the question what are they saying about the global economy? Contrary to CNBC’s commentary commodities were not down because the dollar was up 0.7%. It appears commodities have sided with credit which now leaves equity the sole believer in the “transitory soft patch.”

Copper: A very nasty chart indeed for copper. It appears Monday’s “bottoming tail” was a false bottom and selling will continue. Today alone copper was down nearly 8% which has to be wiping out many leveraged longs.

Oil (WTI): Still down 4% on the day but less carnage of late than copper. Oil though did suffer big losses during the late July selloff where it was down 25% in less than two weeks. As with copper leveraged longs must be getting slaughtered here.

Ten Year: The 10 year put in a good move this week leaving two gaps to be filled and a topping tail on the daily chart. It looks like yields are once again heading towards multi decade lows in the near term.

Money is moving into bonds again whether this is a flight to safety, realization that the global economy will not facilitate higher rates or simply the focus of “return of capital” versus “return on capital.” With 10 year targets as low as 1.5% an investment in 10 year treasuries even at these levels is not so bad as the capital gain could generate a very nice return in short order.

SPX: The bear flag has failed to the downside. Next major resistance will come in at 1,114 and then 1,101. If 1,101 breaks then selling could accelerate.

VIX: The bull flag has failed to the upside. Next major target remains 48.00 which would put fear in more historical levels seen only during the 2001 and 2008 recessions.

Images: Flickr (licence attribution)

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